Mortgage Rates Ease a Bit

Original Post Date: February 18, 2011

By: Nathan Becker

Mortgage rates declined in the latest week, with the average rate on 30-year fixed-rate mortgages landing at 5%, according to Freddie Mac’s weekly survey.

Rates slumped through most of last year as yields on Treasurys declined. But yields have been on the rise recently, pushing mortgage rates back up. The rates generally track the yields, which move inversely to Treasury prices.

Although rates have risen fairly sharply lately, Freddie Chief Economist Frank Nothaft said they “still continue to be very affordable.” He noted that before 2009, rates for 30-year fixed-rate mortgages had never been as low as 5%. Freddie started tracking them in 1971.

The 30-year fixed-rate mortgage averaged 5% for the week ended Thursday, down slightly from the prior week’s 5.05% average and above the year-ago level of 4.93%. In last week’s survey, the 30-year rate climbed to its highest level since April.

Rates on 15-year fixed-rate mortgages were 4.27%, down from 4.29% in the previous week and down from 4.33% a year earlier.
Five-year Treasury-indexed hybrid adjustable-rate mortgages averaged 3.87%, down from the prior week’s 3.92% and 4.12% a year earlier. One-year Treasury-indexed ARMs were 3.39%, up from 3.35% last week but down from 4.23% a year ago.

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Luxury home sales jump 21% in California


Original Post Date: February 12, 2011

By: Lauren Beale

Even the rich love a deal.

California homes priced at $1 million or more experienced a sales boom in 2010, the first increase in five years, even as overall home sales in the state declined, a real estate information service reported. The reason: High-end home shoppers went bargain hunting as certain parts of the economy improved but luxury home prices remained depressed.

Last year, 22,529 homes sold statewide for $1 million-plus, a 21% increase from 2009, according to DataQuick Information Systems in San Diego. In contrast, the total number of California homes sold last year dropped 9%.

“Prestige home buyers respond to a different set of motivations than the rest of us. Their decisions are less dependent on jobs, prices and interest rates, and more on how their portfolio is doing,” DataQuick President John Walsh said.

“When the financial world was full of uncertainty a couple of years back, and the jumbo-loan market dried up, luxury sales plummeted. As the economy started its top-down recovery, some wealthy buyers went looking for a bargain,” he said.

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Luxury home sales jump 21% in California (Continued)

Savvy shoppers trying to time the market swooped in before discounted prices could turn the corner.

“Certainly, we’re pretty sure we’re at the bottom” for home prices, said economist Christopher Thornberg, principal with Beacon Economics in Los Angeles.

Even if prices fall further, he said, “if you are borrowing, buying today makes a lot of sense because interest rates are just incredibly low.”

Two other reasons for the $1-million-and-up market increase are the return of the jumbo mortgage market in 2010 and a comeback in the stock market, which saw huge losses in 2009, Thornberg said. “A lot of folks who were reeling from equity losses bounced back.”

Cash purchases also inched upward among $1-million buyers last year to 29.4% of sales, up from 28.9% in 2009 and the highest for any year since 1994. But even cash purchases can be motivated by low interest rates.

“A lot of cash offers are done on the basis of the person trying to get a leg up and then they turn around and refi,” Thornburg said.

Million-dollar-plus sales hit a high of 54,773 in 2005 and then dropped through 2009. Last year’s sales increase came despite a winnowing in the category; 3,380 of the homes that sold statewide for less than $1 million had previously sold for $1 million or more, DataQuick analysis shows.

“There are not as many million-dollar homes kicking around as there were during the boom years,” Thornberg said.

L.A.-area real estate offices also noticed the uptick in $1-million-plus sales.

“I think last year there were a lot of buyers who said now is the best time to buy,” said Jeffrey Hyland, president of Hilton & Hyland, whose Beverly Hills office doubled its dollar volume from 2009. “We noticed it on the high end.”

His office, for example, sold seven houses for more than $20 million last year.

“That’s a good sign to the market of where we are” that high net-worth buyers are making purchases, Hyland said.

“It’s like those people don’t read the doom and gloom” news reports, he said.

Plus, the rich do often get richer. “Some people are more wealthy now than they were before,” Hyland said.

Most of the high-end sales, 79%, fell between $1 million and $2 million. The median-size home in the million-dollar-plus category was 2,840 square feet, with 4 bedrooms and 3 bathrooms, and the median price paid per square foot was $601, down 0.6% from $605 in 2009. For the overall California housing market, the median price per square foot was $164 in 2010, up 10.1% from $149 in 2009, DataQuick said.

The most expensive confirmed purchase statewide last year, based on public records, was a 35,000-square-foot-plus mansion on 2.2 acres in Bel-Air that sold for $50 million.

But not all mega-deals are subject to the bright light of public curiosity, if buyer and seller employ legal sleight of hand.

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Does Buying a Rental as an Investment Make Sense?


Original Post Date: February 11, 2011

By: June Fletcher

Q. Since so many people have lost their homes to foreclosures and can’t get credit, I expect that it’s a good time to buy a rental investment place. But I’m also worried that property prices may fall further. Do you think this would be a wise way to spend my money?


A. It all depends. If you’re able to obtain a property that’s deeply discounted from its current market value, can achieve positive cash flow and can handle the out-of-pocket expenses that inevitably arise when you’re a landlord, then it could be a good deal.

But first ask yourself these questions: Do you mind panicked calls at 3 a.m. to deal with stopped-up showers or heat pumps that are on the fritz? Do you have a cushion of cash to tide you over during vacant periods and cover costs like advertising and vetting tenants? Can you afford to put down a hefty down payment to obtain financing? And do you plan to own for a few years so you can benefit from the boost in equity you’ll get as you pay down the mortgage, even if it takes a while for home prices to rise again?

If the answer to all of these questions is yes, then you can go shopping. Ask the current owners for copies of all rental receipts, as well as all bills, including utilities, water and sewer, property management and taxes.

Then you’ll have to do some figuring so you can compare the income potential of your targeted properties.

First, for each property, take annual rental income and deduct the average vacancy rate for your area, which in Chicago was 9.5% in the fourth quarter of 2010, according to the U.S. Census Bureau. Then deduct all of the operating expenses; this will give you your net operating income or NOI.

Once you get this figure, you can divide it by the purchase price to get the capitalization, or cap, rate. This is a useful figure to have when you’re comparing properties, since those with higher cap rates will bring you better returns.

You’ll also want to calculate the cash flow by deducting your annual mortgage payment from your NOI.

From that you can calculate the cash-on-cash return for the first year of ownership. Figure out your cash outlay by adding up closing costs, down payment and any expenses for necessary maintenance that was not done by the former owner. Divide your cash flow by your cash outlay and you’ll have your cash-on-cash return, which is expressed as a percentage.

This figure can help you decide which property is the most lucrative, and also to compare the yield of a property with that of other kinds of investments, like Treasuries and stocks.

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Uncle Sam wants you … to repay the home tax credit


Original Post Date: February 15, 2011

By:Allison Linn

Uncle Sam has a reminder for some people who took advantage of the first-time homebuyer tax credit three years ago: He wants his money back.

Americans who bought homes in 2008 using the government’s tax credit will be required to start repaying the credit beginning with their 2010 tax return, according to the Internal Revenue Service. In an odd twist, those who took advantage of a nearly identical tax credit in 2009 or 2010 will not be required to pay it back.

Under the terms of the 2008 tax credit, the credit must be paid back over a 15-year period, beginning with this year’s return.

That means anyone who took the maximum $7,500 credit will have to add $500 to their income tax liability for 15 years. If you sell your house before the 15 years are up, the entire tax credit bill will be due the year the house is sold.

The Internal Revenue Service describes the 2008 program as “like an interest-free loan.”

This may come as a shock to some people, who may have forgotten the terms of the so-called credit, which was really more of a tax deferral. The IRS said it is sending reminders.

“There will definitely be people that are going to be surprised by it,” said Sean M. Dowling, vice president of The Dowling Group in Stamford, Conn., and a certified financial planner.

For others, it paid to be late. If you bought a home in 2009 or 2010 using the same tax credit, you don’t have to pay it back, as long as you stay in your new home for at least three years.

That’s because the government changed the rules regarding the tax credit after the first year, allowing people to take the credit without any requirement that they pay it back.

For those later homebuyers, it works more like free money. People who took advantage of the program in 2009 and 2010 were able to take a maximum tax credit of $8,000, and they don’t have to pay it back as long as they are in the house for at least 36 months.

If you bought a home using the tax credit, Dowling said it is definitely worth verifying whether you owe the money, and paying the liability if you do.

If you don’t pay it, the IRS is likely to send you a bill — perhaps with interest due.

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Cash Buyers Lift Housing


Original Post Date: February 8, 2011

By: S. Mitra Kalita

Buyers in markets around the U.S. are snapping up homes in all-cash deals, betting that prices are at or near bottom and breathing life into some of the nation’s most battered housing markets.

Cash buyers represented more than half of all transactions in the Miami-Fort Lauderdale area last year, according to an analysis from real-estate portal In the fourth quarter of 2006, they represented just 13% of deals. Meanwhile, downtown Miami prices rose 15% in 2010 from a year earlier, according to the Miami Downtown Development Authority.
The percentage of buyers in Phoenix paying cash hit 42% in 2010—more than triple the rate in 2008, according to Raymond James’s equity research division.

Nationally, 28% of sales were all-cash transactions last year, according to the National Association of Realtors. The rate was 14% in October 2008, when the trade group began tracking the measure.

The jump in real-estate purchases made with cash is another sign of the revival of animal spirits in the U.S. economy. The Dow Jones Industrial Average rose 69.48 points Monday, or 0.6%, to 12161.63, and the Standard & Poor’s 500-stock index rose 8.18 points, or 0.6%, to 1319.05.

Monday’s announcements of $13 billion in acquisitions lifted stocks on hopes of more deals, share buybacks and dividends as companies regain momentum in an improving economy. The two stock indexes have soared more than 80% since early March 2009.

The Federal Reserve reported that Americans increased their use of credit cards in December for the first time since August 2008, showing that consumers are getting less skittish about opening their wallets. Investors also were soothed Monday by encouraging signs in Egypt, including last weekend’s reopening of banks.

Residential real estate has been slower to bounce back than stocks, but the presence of apparent bargains is luring in newly confident buyers.

Richard Stoker, a retired sales executive, recently plunked down cash for two condominiums in Miami Beach, and plans to close on one more in coming days. He loves the complex’s ocean views, four swimming pools and activities such as yoga and Pilates. But what also motivated the purchase, said the 73-year-old, was that “the prices were just irresistible. Florida’s been hit pretty hard.” To pay the $1.8 million, $1.2 million and $1 million prices on the condos, Mr. Stoker and his wife, Jane, cashed out of some financial investments and sold a Roy Lichtenstein painting and an Alexander Calder mobile. Mr. Stoker could have taken out mortgages, but decided to pay cash. “It was a good time to lighten up in the art market and take on real estate at a favorable price,” he said.

The harder a market has been hit, say economists, the higher the percentage of cash deals. Last summer, piano teacher Virginia Hall-Busch told a real-estate agent she met through the Rotary Club to keep her posted on deals on historic houses in Stone Mountain, Ga.

A few days later, Ms. Hall-Busch, 62, got a call about a 1918 bungalow with three bedrooms and one bathroom listed for “short sale,” which in the real-estate world means at a price lower than what’s owed on it. The home had been on the market for $159,000, then dropped to $129,000 and then to $79,900. “I offered them 50,” she said. “I figured, it wasn’t like I needed a place to live. I can afford to be a little cocky here.” Ms. Hall-Busch closed in October for $52,500 and began renovations within weeks. “When you have a bad economy, it’s hard on lots of people,” she said. “But right now if you’ve got the money to put down on a house, long term it’s going to be good thing.”

Some of the cash purchases reflect a tight lending environment, where even people with good credit and ample down payments are sometimes turned away for conventional borrowing.

“The rates are great but the underwriting is brutal,” said Henry Schlangen, an agent with real-estate firm Pacific Union International who buys and sells for clients, mainly in Napa Valley, Calif.

“They hang these people upside down and shake them till they see what falls out of their pockets. So people are buying with cash and maybe they’ll ‘refi’ later.”

Mr. Schlangen, who deals in higher-end properties such as vineyard estates, estimated that 95% of his deals last year were all-cash, up from about half in previous years. “The deals that are consummating, these are buyers who feel they got a great deal,” he said, noting a surge of buyers from China.

Cash buyers can often command 5% to 10% more off the asking price than a potential buyer using a mortgage, said Mohammed Siddiq, a real-estate professional in Fort Lauderdale, Fla. Sellers prefer cash deals since they close more quickly and avoid risks such as a buyer’s job loss or a bank’s changing its mind.

And while many buyers making low-ball offers dig their heels, Mr. Siddiq said he has started to see bidding wars and slightly increasing prices.

Nationally, it isn’t clear whether prices have bottomed. The Case-Shiller index of housing prices in 20 cities showed a steep decline in prices until 2009, when they appeared to bottom and began to trend upward. But in the second half of last year, prices began falling again. A Zillow index, meanwhile, never noted the uptick.

Since mid-October, Canyon Ranch in Miami Beach, the development Mr. Stoker bought into, has sold 35 units, with a third of the buyers from overseas and many others retiring from the Northeast.

The Stokers have a home in Potomac, Md., but spend most of the year in Florida. Mr. Stoker doesn’t plan to rent out any of his new properties, saying he and his wife will live in one with two dogs, his son might live in another and the third will house an older dog and guests.

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Adjustable-rate mortgages are making a comeback


By: Kenneth R. Harney

Original Post Date: January 30, 2011

 Reporting from Washington —

After years of virtual exile from the home loan arena, is the adjustable-rate mortgage staging a quiet comeback? Could an ARM be on your shopping list the next time you need to buy a house or refinance?

You might be surprised.

A new survey of 112 lenders by mortgage giant Freddie Mac found that ARMs are starting to attract applicants again. Adjustables accounted for just 3% of new home loans in early 2009 but are projected to be picked by nearly 1 out of 10 borrowers in 2011. In the jumbo and super-jumbo segments, the share will be even larger, according to Freddie Mac chief economist Frank Nothaft.

How could this be, with fixed 30-year rates at half-century lows, hovering just under 5%? Isn’t it axiomatic that it’s always smarter to lock in a low fixed rate for as long as possible rather than gamble on a loan whose rate might bounce around in the years ahead?

That logic still holds up for most people, but not for everybody. Here’s why. The boom-era models of the ARM have pretty much disappeared — there are no more of the two-year adjustables that hooked record numbers of consumers in 2003 and 2004 with teaser rates that needed to be refinanced with heavy fees within 24 months. No more “pick-a-pay” ARMs that were mass-marketed with loosey-goosey underwriting and the potential for negative amortization.

The most popular ARM in the market today, according to the Freddie Mac survey, is the 5-1 hybrid. Its rate is fixed for the first five years of the loan, then adjusts annually for as much as the next 25 years, with rate caps to cushion payment shocks if rates suddenly soar. There are also 7-1 and 3-1 hybrids. The antique one-year ARM still is available but doesn’t get a lot of takers.

The real key to the growing popularity of hybrid ARMs is in their pricing. Rates are significantly lower than fixed 30-year alternatives, with no teasers or negative amortization involved. In some cases, they also come with other attractive terms, such as more flexible underwriting standards.

According to data supplied by Dan Green, a loan officer with Waterstone Mortgage Corp. in Cincinnati and author of blog, the rate spread between 5-1 hybrid ARMs and 30-year fixed-rate loans has widened to around 1.625 percentage points.

To illustrate, say you’re interested in a $250,000 conventional loan to buy a house. You’ve got a FICO credit score of 740 and want to close in 45 days. You could opt for a 30-year fixed loan at 4.75%, requiring a monthly principal and interest payment of $1,304. Alternatively, you could opt for a 5-1 ARM fixed at 3.125%, costing $1,071 in principal and interest per month — a $233 saving.

But now check out the niche where hybrid ARMs really shine: jumbo and super-jumbo mortgages. Generally jumbos range from $417,000 to $729,750, depending on home prices in your local market. Super jumbos can go into the millions.

Say you need a $450,000 mortgage with a 45-day closing and you have a FICO score of 740. According to Green, you should be able to get a 30-year fixed-rate jumbo for around 5.625%. Monthly principal and interest on a fixed-rate jumbo would total $2,590 a month.

Compare that with a $450,000 hybrid 5-1 ARM: 3.5% for the initial five years, requiring $2,020 a month in principal and interest. That’s a rate spread of 2.125 points — “the best we’ve seen in years,” Green said. “It’s very aggressively priced” by banks that want to originate the loans to hold in their own portfolios.

The savings go even higher in the super-jumbo space — a $1-million 5-1 ARM goes for 3.5% and saves a borrower $1,266 a month compared with a competing fixed-rate 30-year loan at 5.6%.

Cathy Warshawsky, president and senior loan officer of Bay Area Loan Inc. in San Jose, cites another advantage for some jumbo borrowers — special enhancements in payment terms. For example, a client of Warshawsky’s needed a $950,000 mortgage at the lowest rate and monthly payment. She signed him up for a 5-1 hybrid at 5.75%, interest-only.

None of this is to suggest, of course, that hybrid adjustables make financial sense for everybody. They don’t. But if you fit one of the niches — you need a jumbo, you know you’re likely to be transferred or you expect to sell the house within five to seven years — they merit a serious look.

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